The error being genuine would only save them from further regulatory actions. If brokers find that the errors have not happened at their end, they might pass on the liability to the investors, but the exchanges would collect the penalty from the brokers
New Delhi: In a reprieve to brokers having erred genuinely in their share sale or purchases, capital market regulator Securities and Exchange Board of India (SEBI) and the stock exchanges have decided not to penalise them if the trades executed in wrong names are declared as annulled, reports PTI.
To escape penalisation, brokers would have to transfer the trades executed in the wrong client name or code to an ‘Error Account’, and not to some other client, and then liquidate the same.
However, brokers would face monetary penalties, being imposed from this month, if the trades are transferred to some other client by citing error in punching the name of the client, even if such an error is genuine.
The error being genuine would only save them from further regulatory actions. If brokers find that the errors have not happened at their end, they might pass on the liability to the investors, but the exchanges would collect the penalty from the brokers.
The genuine errors include those due to communication, punching or typing in cases of the original and modified client code or name being similar to each other. The changes made within ‘relatives’, as defined under the Companies Act, 1956, are also considered genuine errors.
The penalties came into effect from 1st August after SEBI decided to penalise brokers for transfer of trades from one client to another, citing errors. It was feared that the practice was aimed at facilitating flow of black money and evasion of taxes in stock market.
However, the rules have been relaxed a bit after consultations held by SEBI with various stock exchanges.
Subsequently, the capital market regulator issued a fresh circular to the stock exchanges informing them of changes, effective from Monday.
“Any transfer of trade to error account of the broker would not be treated as modification of client code and would not attract any amount of penalty, provided the trades in error account are subsequently liquidated in the market and not shifted to some other client code,” SEBI said.
For easy identification of error account, brokers will have to register a fresh client code as ‘Error’ with the stock exchange for the account classified by them as error account.
Also, brokers would have to put in place well-documented error policy approved by their board and management, and would be required to inform the exchange on a daily basis the reasons for modification of client codes.
Subsequently, penalties would be still levied on all client modifications, except those transferred to ‘error accounts’, SEBI said.
SEBI introduced the penalties after it came across a loophole in regulations that was being abused by stock brokers for facilitating tax evasion and flow of black money through fictitious trades in lieu of hefty commissions.
To remove this anomaly, SEBI has powered stock exchanges to penalise the brokers transferring trades from one trading account to another after terming them as ‘punching’ errors.
The penalty would be between 1%-2% of the value of shares traded in the ‘wrong’ account, as per the new rules that came into effect from 1st August.
In a widely-prevalent but secretly operated practice, the people looking to evade taxes approach certain brokers to show losses in their stock trading accounts, so that their earnings from other sources are not taxed.
These brokers are also approached by people looking to show their black money as earnings made through stock market.
In exchange for a commission, generally 5%-10% of the total amount these brokers show desired profits or losses in the accounts of their clients after transferring trades from other accounts, created for such purposes only.
The brokers generally keep conducting both ‘buy’ and ‘sell’ trades in these fictitious accounts so that they can be used accordingly when approached by such clients.
In the market parlance, these deals are known as profit or loss shopping. While profit is purchased to show black money as earnings from the market, the losses are purchased to avoid tax on earnings from other sources.
As the transfer of trades is not allowed from one account to the other in general cases, the brokers show the trades conducted in their own fictitious accounts as ‘punching’ errors.
The regulations allow transfer of trades in the cases of genuine errors, as at times ‘punching’ or placing of orders can be made for a wrong client.
To check any abuse of this rule, SEBI has asked the bourses to put in place a robust mechanism to identify whether the errors are genuine or not. At the same time, the bourses have been asked to levy penalty on the brokers transferring their non-institutional trades from one account to the other.
The penalty would be 1% of the traded value in wrong account, if such trades are up to 5% of the broker’s total non-institutional turnover in a month.
The penalty would be 2% of trade value in wrong account, if such transactions exceed 5% of total monthly turnover in a month.
Apart from revising the definition of regulatory capital, Basel III is much wider in terms of its risk coverage clauses and encompasses measures to address systemic risks. The RBI observed that implementation of Basel III has thrown up significant challenges for both banks and banking supervisors alike
Mumbai: The Reserve Bank of India (RBI) has said Indian banks will adhere to the globally agreed timeline for implementation of Basel III norms and guidelines in this regard will be issued in the near future, reports PTI.
“The RBI is examining the Basel III regulations and will issue guidelines to the extent applicable for banks operating in India in due course of time,” the RBI’s annual report said.
Basel III is the new regulatory framework designed to correct the deficiencies in regulation that led to the global financial crisis of 2008.
It is to be noted that in the wake of financial crisis, the Basel Committee on Banking Supervision (BCBS) has initiated several post-crisis reform measures, mainly in terms of building on the Basel II capital adequacy framework.
Though Basel III can be viewed as a modification of the Basel II framework, it differs significantly in terms of its comprehensiveness, it said.
“The RBI would adhere to internationally agreed phase-in period starting in 1 January 2013, for implementation of Basel III,” it said.
Implementation of the Basel III norms is scheduled to commence from 1 January 2013, and has to be completed by 1 January 2019.
Apart from revising the definition of regulatory capital, it said Basel III is much wider in terms of its risk coverage clauses and encompasses measures to address systemic risks.
The RBI observed that implementation of Basel III has thrown up significant challenges for both banks and banking supervisors alike.
It said that availability of an adequate amount of capital, both in terms of quality and quantity, “provides significant comfort to begin implementation of the new framework” as per the time schedule fixed by the BCBS.
FIEO president Ramu S Deora pointed out that amid the subdued global environment following the sovereign debt downgrades of the US and Japan and the debt crises in the Eurozone area, there is little to look forward to as far as exports from the MSME sector are concerned
Mumbai: The Federation of Indian Export Organisations (FIEO) has called on the Reserve Bank of India (RBI) to open a Libor-linked forex loan facility for exporters, especially small and medium businesses, to help them overcome a fund crunch, reports PTI.
Quoting the latest RBI data, FIEO president Ramu S Deora said rising interest rates have impacted credit offtake by 2 percentage points, with the credit growth rate slowing to 18.5%.
Mr Deora also pointed out that in spite of repeated hikes in policy rates by RBI, inflation is again gravitating toward double-digit levels.
The RBI has hiked short-term lending rates by a whopping 475 basis points since March, 2010 to tame inflation, which has been hovering above 9% since last December.
Mr Deora pointed out that amid the subdued global environment following the sovereign debt downgrades of the US and Japan and the worsening debt crises in the Eurozone area, there is little to look forward to as far as exports from the MSME sector are concerned.
Mr Deora also warned that going forward, export growth will slow down while imports are likely to remain at the same level, further widening the already high trade deficit.
In these circumstances, he urged the government to cap interest rates for MSME exports at 7% with the introduction of interest subvention for exports, besides monitoring of credit offtake for exports and providing information on the same in its monetary policy review regularly.
He also called for apportioning more funds to the Export Credit Guarantee Corporation, besides increasing the interest on Exchange Earner’s Foreign Currency Accounts to offset rising borrowing and input and raw materials costs.
It is understood that the ongoing dollar supply crunch in Europe is pushing up the cost of obtaining the American currency through the swap market in Asian financial centres, impacting MSMEs that are looking for dollar loans.